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Tesla is having some predictable union problems

Tesla might be the second-largest US
carmaker by market capitalization, having surpassed Ford and
threatened General Motors with its recent surge to a $50-billion
valuation, but it's the most naive when it comes to understanding
how labor operates in the auto industry.

The company's difficulties aren't even limited to a single
continent. Earlier this year, long-simmering rumors about a
unionization effort at Tesla's Fremont, Calif. factory broke into
the open.

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Thus far, Tesla has sort of gently opposed the potential effort,
taking a "We're different from other automakers" position that
stressed Tesla's startup-y DNA and Silicon Valley ethos about
compensation, in which workers get stock options that could
ultimately be far more valuable than wages.

Wages are wages

Silicon Valley loves this argument; labor unions don't. And
although Tesla is sort of denying history in Fremont - its
factory was unionized back in the 1980s, when it was jointly
operated by GM and Toyota - the company is going to hit a German
brick wall with Grohmann, going beyond denying history to denying
reality.

German industry is comprehensively unionized. So much so
that even when German companies establish operations in extremely
labor-unfriendly places such as Tennessee, as Volkswagen did a
few years back by building a new factory, they often support the
development of workers' council to collaborate with management.

caption

Tesla's Fremont factory.

source

Benjamin Zhang/Business Insider

Grohmann is of this culture and if Musk doesn't figure that
out, he'll have to deal with a German strike. This will itself
probably be a bit weird, as US executives with limited union
exposure are trained to think that labor strikes are highly
confrontational, bare-knuckled throwbacks to the head-busting
1930s.

In Germany, they aren't. IG Metall, if it does call
for a strike, would likely do so with predictable German
precision. The union would tell Tesla when exactly the strike
would begin and probably end. The strike would, initially at
least, be a sort of protest. But then there might be more
precisely organized strikes.

Tesla's equity-is-better-than-wages argument won't hold
much sway in Fremont, assuming a union effort does take shape.
Any union contract could bake in some kind of stock-based
compensation structure. The major US automakers do something like
this with profit sharing.

It really won't hold sway in Germany, where Musk's
suggestion that Tesla could grow from its currently outsized
$50-billion-ish market cap to be worth a staggering $500 billion
would be greeted with the worker counterargument that this is
Germany and the labor force would like to be fairly compensated
right now, in line with what their peers receive.

The mother of all forward-looking statements

Musk can make the mother of all forward-looking statements,
but that can't change the fact that prior performance is no
guarantee of future outcomes.

What's confusing here is that Tesla is mustering any
pushback. If it hadn't wanted to deal with a unionized Fremont
plant, it shouldn't have bought a factory in California. Alabama
or South Carolina - so-called "right to work" states where
foreign automakers have established non-union plants. And if it
hadn't wanted to wrangle with extremely well-established unions
in a land of social democracy, it shouldn't have bought a German
company.

Of course, it did both of those things. So no it needs to
go back to drawing board with its overall labor-relations
messaging.